Weekly inventory data from the Energy Information Administration showed an unexpected drawdown in U.S. crude oil stockpiles, sending oil and energy stocks higher on the session.
On Wednesday morning, the EIA said inventories fell by 3.41 million barrels last week, while Wall Street had anticipated an increase of 714,000 barrels. Meanwhile, gasoline stockpiles fell by 1.23 million barrels, more than the expected 700,000-barrel decline and distillate inventories slipped by 1.65 million barrels compared to estimates for a one million-barrel draw.
Crude oil prices traded higher on the back of the data’s release as traders sent U.S. benchmark West Texas Intermediate crude prices up nearly 3% to above $45 a barrel. Brent crude prices followed, trading up more than 3.4% to above $47 a barrel.
Although negative on the session thanks to weakness in retail and entertainment heavyweights, U.S. equities benefitted from the upswing in crude. The energy sector was the biggest S&P 500 gainer on the session, rising 0.5%.
The data from the Department of Energy followed figures from the American Petroleum Institute late Tuesday night, which showed a 3.45 million-barrel jump in stockpiles last week, which was much higher than the 714,000-barrel build that had been anticipated.
Former Shell Oil President John Hofmeister told FOX Business Network’s Stuart Varney he expects to see similar moves in U.S. inventory data going forward.
“[Americans] love oil. We love gas. We’re a mobile society. And I’m not too worried about the so-called glut because we will eventually use it up,” he said.
He pointed to daily consumption figures worldwide standing at about 94 million barrels per day, with 18.5 million of those consumed in the U.S., while the nation imports seven million barrels daily. He said eventually the demand side of the equation will move back in line with production.
Hofmeister forecasted oil prices will hit $50 a barrel during the summer driving season as more Americans buckle up and hit the road for family vacations and travel to far-away destinations.
But, he said the bigger issue for the future of oil prices is what happens in terms of output levels between Saudi Arabia and Russia – two of the world’s biggest oil-producing nations. Hoffmeister said the two nations are still producing too much crude and not making enough money on it.
“They haven’t [pulled back production] so far. But I am of the view that they are smarter than we think they are, and they are playing a game with the Russians. At some point, the Russians have got to blink because their economy is on the rocks,” he explained.
At a meeting last month in Doha, Qatar – watchers of the oil market expected to see an agreement among some of the world’s biggest producers of oil to cut back or freeze production at January levels. However, participants in the gathering walked away from the negotiating table with no deal.
Over the weekend, Saudi Arabia unexpectedly announced a shakeup in its regime, appointing a new oil minister as the nation’s rulers seek to move the economy away from one so dependent on oil.
A meeting among OPEC producers is expected in June, but it’s unclear whether members of the cartel will come away from it with an agreement to trim output, or opt to continue producing at record levels.